Apple – What Will the Stock Do Next? - 27 August 2015

By: Markets.com

Apple is the largest company in the world. This is indisputable, as the company has ballooned in 2015 to a value of over $700 billionⁱ. But just because the company is worth so much doesn’t mean the stock can’t fluctuate and provide investors with similar returns or losses (percentage-wise) like any other company. Let’s review where Apple was before the last quarterly earnings report and analyze the results of the latest earnings release, so that we can get a better feel for where the company is currently heading and how it might perform in the future.

What did we know before the last earnings report?

We knew that typically, the 3^rd quarter was Apple’s slowest for iPhone sales. However, we also knew that Apple had beat Wall Street’s non-GAAP earnings per share (EPS) expectations in eleven consecutive quarters. And in line with that statistic, analysts expected iPhone sales to be $29.9 billion – well above the $19.8 billion from the year-earlier period. They also expected $49.3 billion in revenue, up from $37.4 the year before.ⁱⁱ

Perhaps, the most important prediction for investors was the expected $1.81-1.90 EPS, up to 50 cents above the $1.40 bump a year earlier. Apple stock had not gone up much since the earnings report released in April, but still, shares were up nearly 40% from the year earlier and analysts gave Apple a twelve-month target price of $147.62.²

With iPhone 6 and 6 Plus sales seemingly doing very well thus far, especially in China, there was plenty of room for optimism (despite fears that iPhone sales could slow during the remainder of the year). Additionally, while Apple issued statements that they would not be divulging their Apple Watch sales figures, and instead would lump them into the “other products” category (which includes Beats Electronics and iPods), there were encouraging rumors that Apple had conquered 75% of the market for smartwatches, compared to Samsung’s 7.5%.ⁱⁱⁱ

What ended up happening in the 3^rd quarter report?

Despite the optimism heading into Apple’s third-quarter report, results didn’t wow as much as they were expected to. EPS was only $1.85, only slightly higher than the $1.81 some analysts had expected – and lower than others. Revenue was also only slightly higher than expected, coming in at $49.6 billion.^iv

iPhone sales came in at 47.5 million units, and although Tim Cook called the iPhone 6 a “runaway success,” nevertheless, this figure was less than the expected 48-50 million units sold. iPad sales were especially disappointing, standing at 10.9 million units, in contrast to the 13.3 million units sold in the year-earlier period.⁵

There was, however, some good news as well. Deeply invested in China, Chinese revenue for the quarter was $13.23 billion, a massive increase from the $6.23 billion just one year ago. And although they were vague on figures, Apple said that sales of their Apple Watch had exceeded internal expectations.⁵

The good news didn’t really help Apple stock in after-hours trading though, and following the release of the earnings report, Apple stock fell more than 6 percent.⁵

What can we expect moving forward?

While no one can say with certainty what Apple will accomplish in the future, it is definitely entrenched as one of the most powerful tech companies in the world. And despite the slightly disappointing figures last quarter, remember: the third quarter is generally the slowest for Apple. Also, Tim Cook seemed excited by the reception that the iPhone 6 received, as well as by Mac sales.^v Also fueling positive speculation is the continued growth of the smartwatch (and Apple Watch) market, especially with more time for the development of watch-specific apps. There is also the potential rise of Apple Music, which already has 11 million people subscribed to its free three-month trial, but more importantly, also has 2 million confirmed memberships.^vi It remains to be seen just how popular the service will become.

In conclusion, heading into a historically better quarter, there are many reasons to think that Apple could rebound from this quarter’s somewhat disappointing results. Stay abreast of Apple news and updates so you’ll know – even better than you do now – what to expect when the next earnings report comes out.

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